Negotiate Commercial Leases

Negotiate Commercial Leases

by John Highman, Commercial Real Estate Coach

In commercial real estate property management and leasing, negotiating with tenants regards renewing their leases is quite a common event.  Unfortunately many property managers leave the matter till it’s too close to the cutoff date, and negotiations become pressured.

Pressured negotiations become impacted by the prevailing market conditions and the sentiment of the landlord and tenant to the process.  The lease renewal process can be far more easily negotiated when you start early (several months) and work to a strategy.

Did you know: Commercial Rental Tracker Plus has a Rent Roll report that includes a list of all your Lease Expiration Dates for the next five months?

Here are some ideas to help the process:

  1. A lease renewal is typically the exercising of an option under the terms of an existing lease.  The tenant has the ability to extend the lease term based on the existing lease documentation.  In the current lease, there will be some factors of time constraint or critical dates that need to be considered and worked within.  Look at all the leases within a property to ensure that you understand any critical dates of this type.  It is best to identify the critical dates inside the next two years and then work closely towards any required negotiations and activities that the leases require.  In other words you start early.  There is nothing wrong with negotiating a lease renewal even 12 months out.
  2. It is always inconvenient for a tenant to relocate.  On that basis the landlord will always have an advantage in any negotiation.  That being said, it is important to understand just how many other alternative properties are available locally for the tenant to consider currently.  As part of that process, you will need to understand the rental and lease offerings in the current market.  That will be by at least type, amount of rental, and incentives.
  3. Any new property developments coming into the market will significantly impact the supply and demand for new space.  Keep a close eye on future property developments at the local planning office.
  4. Prevailing economic conditions and business sentiment will vary from a location to location.  They will also vary seasonally and within business types.  Be sensitive to the pressures that can apply on each particular tenant involved in any lease renewal or lease negotiation.  If necessary you can alter the terms of the renegotiation to allow the tenant some advantage.  You could consider alternative premises within the one property, expansion or contraction, or changes to the lease terms and conditions with a rent reviews, and lease options.

When the property market gets tough, you need to protect your good tenants within the property.  That requires a proactive approach and early negotiations to remove the threat of tenant loss.  A lower rental today can be restructured and rebuilt over the lease term through different rent review profiles.  That is the strategy that a professional commercial property agent can bring to the landlord.
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